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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, November 19, 1999

Russian Federation


OSCE Signs Security Charter

· The 54 participants in the Organization for Security and Cooperation in Europe (OSCE) summit today signed a Charter on European Security. Russia's Foreign Minister Igor IVANOV made major concessions to the charter, after President Boris YELTSIN in an address tailor-made for domestic consumption blasted the world for criticizing Russian's internal affairs. The signing had been delayed due to particular statements on Chechnya. The Security Charter allows for foreign intervention in internal conflicts. Leaders agreed that outside intervention in a civil war can be justified, if the conflict has the potential of spreading beyond its borders. The Charter calls for a political solution in Chechnya. YELTSIN has said he will not negotiate with "bandits and terrorists." However, he noted that a political solution will only happen once the military campaign is successful. The OSCE still has no plans for an intervention campaign, but has offered to serve as a mediator. Russia says it has no one to mediate with. The OSCE has developed three proposals for Russia regarding the settlement of the Chechen conflict. OSCE chairman Knut VOLLEBAEK proposes to send a group of observers to Chechnya, to open an OSCE mission there and to settle the conflict by peaceful means with its participation. The summit's declaration invites VOLLEBAEK to enter Chechnya and to send in monitors and relief workers. Russia agreed to give the OSCE both a political and a humanitarian role in the region. The Charter calls for the creation of a civilian rapid reaction capability to help with crisis management, disaster relief and short-notice administrative support in Europe. The European Union has provided the Moscow UNHCR officer with $3 million to help Chechen refugees. Russian aid official Nikolai ZUDILIN said

the International Committee for the Red Cross has also agreed to contribute aid. Comment: Russia's theatrical performance has overshadowed the major accomplishment of the summit: the signing of four preliminary agreements for the Baku-Ceyhan Caspian oil pipeline.

CFE Treaty Reduces Non-Nuclear Weapons

· The Conventional Forces in Europe (CFE) Treaty was signed today by 30 heads of state and government at the summit of the Organization for Security and Cooperation in Europe (OSCE) in Istanbul. Under the agreement non-nuclear weapons will be cut in Europe. This includes reduction the number of tanks, helicopters, and combat aircraft to 50,000. The agreement updates the 1990 treaty which set ceiling for armed forces and heavy equipment at cold war levels for NATO and the former Warsaw Pact. The new treaty sets limits per country and sub-limits in flank regions, with an exception being made for Russia, on tanks, armored combat vehicles (ACV), artillery pieces, combat aircraft, and attack helicopters. Ceilings were increased the Caucasus region, where Russia has launched a military offensive campaign against Chechen rebels. Russia has agreed to fulfill its commitments to the treaty, however, it is already in violation of the treaty due to its Chechen air-raids. General Vladimir BELOUS, Professor of the Academy of Military Sciences, director of the International and Strategic Studies Center said Russia will adjust its flank restrictions after the anti-terrorist operation in Chechnya is over. He said

Today's News Highlights


Sutyagin Charged With Treason

Oil Exporters' Budget Arrears

BP To Gain Arco Stakes

European Republics

Lazarenko Probe Expands

South Caucasus & Central Asia

Gudauta, Vaziani Russian Free?

Joint Investigation At Shatili

Turkey-Turkmen Sign Gas Deal

CPC Begin Laying Pipes




November 19, 1999

Intercon's Daily

Russia's stance can be explained by threats to its national security posed by international terrorist organizations. US President Bill CLINTON today said he would not submit the agreement to the Senate until Russia reduces the number of its troops in the North Caucasus. The most important progress came as Russia agreed to withdraw their forces at bases in Georgia and Moldova, which have been occupied without their consent¾a requirement of the treaty. Russia has agreed to reduce its ACVs by 248 and artillery pieces by 28 in Georgia, in addition to a complete withdrawal from the Vaziani and Gudauta military bases. It is believed that Russia currently maintains at least 7,000 soldiers, 140 tanks and 500 ACVs.

Arms Control Specialist Charged With Treason

· Russia's Federal Security Service arrested Igor SUTYAGIN, who headed a department on military studies at Moscow's Institute of USA and Canada, on October 27th in his home in Obinsk on suspicions of spying. The Associated Press reports that on November 5th, the arms control specialist was charged with treason. The accusation did not say which country allegedly used him as a spy, but institute director Sergei ROGOV said he thinks SUTYAGIN is suspected of spying for the US. The day SUTYAGIN was arrested, FSB officers also searched the apartment of Josh HANDLER, an American graduate student from Princeton University, who had also worked with the Institute of the US and Canada and frequently shared an office with SUTYAGIN. According to the Institute, HANDLER has left Russia.


CB Reviews Plan For Foreign Subsidiaries

· The Russian Central Bank is considering several options for the transfer of its foreign commercial subsidiaries out of its direct ownership. This has been set by the International Monetary Fund (IMF) as a condition for future support. An investigation by PricewaterhouseCoopers concluded that the Central Bank used a subsidiary of Eurobank to carry out purchases of government securities and concealed the true-size of Russia's foreign currency reserves, the Financial Times reported. One option would be to place the stakes of the five European banks into Vneshtorgbank, a Moscow-based foreign trade bank in which the Central Bank holds 99 percent. Another

option is to place the subsidiaries into a trust. Yuri PONOMAREV, the newly appointed Vneshtorgbank chairman who has close contacts with Central Bank chairman Viktor GERASHCHENKO, said his top priority is to improve management procedures and internal controls so that foreign banking regulators will be satisfied with the bank's suitability to hold the shares of the Central Bank subsidiaries. It is believed, however, that IMF senior officials will not be satisfied if the Central Bank subsidiaries are held directly or indirectly. The newspaper also points out that there is widespread skepticism among foreign banking regulators about the desirability of a sale of the subsidiaries to a Russian private bank, given the weaknesses of the sector and allegations of corruption around them.

Ruble = 26.41/$1.00 (NY rate)

Ruble = 26.39/$1.00 (CB rate)

Ruble = 27.19/1 euro (CB rate)

Jun Jul Aug Sep Oct Nov

Oil Exporters Owe 1 Billion Rubles In Taxes

· The Russian Tax Ministry has calculated that oil exporters owe the federal budget 1 billion rubles ($38 million) in tax. The Tax Ministry checked 170 oil-exporting companies and revealed that as of October 1st, 35 of companies had tax arrears. The Ministry intends to cut these 35 companies off of the export pipe and make amendments to oil-exporting legislation so that companies must prove that they owe tax authorities nothing before being allowed to export oil. The Ministry and the tax police are further examining of the activities of the 35 companies. Russia's 95 biggest oil exporters paid 15.5 billion rubles ($585 million) in taxes, including 14.4 billion

When you need to know it as it happens




November 19, 1999

Intercon's Daily

rubles ($543 million) in cash, in the first nine months of 1999.


BP Amoco Set To Expand Russian Assets

· BP Amoco executives are negotiating a buy out of US Arco, which would increase its presence in the Russian oil industry. Once the sale is complete, BP Amoco will take control of an 8 percent stake in Russia's largest oil company LUKoil, now owned by Arco. It will also acquire a 46 percent of a joint venture company LUKArco, owned by LUKoil and Arco. Director of External Affairs for BP Amoco Russia, Howard CHASE said, "Arco has significant shareholder interest in LUKoil...we will look very carefully at the position with Arco's Russian interest once the merger with Arco is completed." BP Amoco's interest in obtaining the Arco stakes, contradicts its stance in the company's first investment in Russia. BP Amoco has threatened to withdraw from Russia altogether due to a serious dispute over assets of bankrupt Sidanko with its main rival and creditor Tyumen Oil Company. BP Amoco purchased a 10 percent stake in Sidanko in 1997 for $571 million. BP Amoco has been trying to restructure Sidanko's debts, since it was declared bankrupt in May. Several of its subsidiaries have been sold in auctions, including Kondpeteroleum which was sold to Tyumen Oil Company. Chernogorneft, another Sidanko unit, will be sold next week.

money legally through business activities not connected with this governmental position. He claims that the charges have been fabricated by LAZARENKO's opponents, primarily Ukrainian President Leonid KUCHMA. Evidence submitted by Swiss authorities suggest the former prime minister profited from a business deal in which a middleman overcharged the Ukrainian Cabinet by $889,749 for six prefabricated homes. He also received millions of dollars in connection with the sale of minerals and natural gas, The Walls Street Journal reported. Grigory OMELCHENKO, a Ukrainian legislator who heads a governmental anti-corruption commission believes the sum of LAZARENKO's holdings could go even higher. "LAZARENKO and his commercial entities established an international financial empire that holds no less than $1 billion in foreign bank accounts in 40 countries."

South Caucasus & Central Asia

Gudauta, Vaziani To Be Russian Free In 2001

· Georgian Foreign Minister Irakly MENGARISHVILI and his Russian counterpart Igor IVANOV in Istanbul reached an agreement for the removal of all troops from Russian military bases in Gudauta and Vaziani before July 1, 2001. It is also stressed a joint statement that Russia will decrease level of its arms at the territory of Georgia according to the limits of the Agreement on arms and technology not later then December 30, 2000. That means by December Russia must have only 153 tanks, 241 armored cars and 140 artillery systems in Georgia. Officials in Sukhumi have protested against the agreement. Defense minister of Sukhumi government Vladimir MIKAMBA told Prime News Agency that Gudauta military base, "has exclusively peacekeeping functions in the conflict zone, so it cannot be withdrawn." According to him, in case of withdrawal of Russian military from Gudauta, the property of the base should be handed over to Abkhazian Air Force. MIKAMBA said that "Russia and Abkhazia will probably come to on agreement in keeping Gudauta base." One can only wonder where the planes for the Abkhazian Air Force came from and how they can speak with such confidence.

Joint Team Investigates Helicopter Bombings

· A group of seven experts from the Russian Defense Ministry are scheduled to arrive in Tbilisi to

European Republics

Lazarenko's Financial Corruption Case Grows

· International law-enforcement authorities have increased the amount of money allegedly squandered by former Ukrainian prime minister Pavlo LAZARENKO to $700 million. Ukrainian authorities formally charged LAZARENKO with stealing $2.1 million during his time in office. US prosecutors in San Francisco allege that $124 million was moved through the former prime minister's Swiss bank account during a single week in August, 1997. Swiss authorities have charged him with money laundering and are seeking his extradition. New discoveries by offshore-banking authorities in Antigua have brought the total estimates of LAZARENKO's wealth to $700 million. Michael HANDWERKER, an attorney for LAZARENKO, maintains that his client earned his

When you need to know it as it happens




November 19, 1999

Intercon's Daily

work with Georgian investigators for joint inquiry of November 17 incident in Shatili, when an Mi-8 and two Mi-24s Russian helicopters violated Georgian air space and attacked the territory nearby the Chechen portion of Russian-Georgian border. Georgian officials immediately lodged a protest with the Russian Embassy in Tbilisi. Head of Russia's Air Force Thursday acknowledged the intrusion may have been carried out by army helicopters not under his command. Georgian Foreign Ministry spokesman Avtandil NAPETVARIDZE said on Thursday a Russian Su-25 fighter jet flew some 15 kilometers in and around Shatili, but did not drop any bombs. Georgia has issued a new protest for Thursday's airspace violation.

Valery CHKHEIDZE, chief of the Georgian Border Guards said that Georgia will tighten its borders with Russia and install anti-aircraft guns. He added that Georgian troops have been given orders to "shoot dead" all violators. He noted that the helicopters not only attacked not only Shatili but also the highland region Georgitsminda. Georgian Interior Minister Kakha TARGAMADZE said Wednesday that "all interior ministry troops have been mobilized." Georgia has reiterated its protests over the bombing incident and called for a full investigation.

The Russian Defense Ministry initially denied that its helicopters bombed Shatili. According to a ministry spokesman, "The Russian helicopters were carrying out combat reconnaissance of a section of road on the Russian territory leading from Itum-Kale to the Russian-Georgian state border. The results of the task were recorded on video." This video has not been released to the Georgian side. Russia even claims that the helicopters came under fire from an anti-aircraft system at a Chechen rebel base 6 miles from the border. The ministry said that reports were, "malicious disinformation aimed at complicating traditionally friendly ties between Russia and Georgia and misleading world opinion over the action of Russian troops to destroy bandit and terrorist groups," in Chechnya.

Turkmen-Turkey Sign Gas Deal

· The Presidents of Turkmenistan and Turkey, Turkish energy Minister Cumhur ERSUMER and the heads of the Botas and Tagas companies Thursday signed a natural gas agreement. Under the agreement, Botas and Tagas will sell Turkmen gas to Turkish and European markets. The Turkmen gas will be delivered to Turkey through the trans-Caspian gas pipeline that will run through Turkmenistan, Georgia, Azerbaijan, and Turkey. The pipeline will have an output capacity of up to 30 billion cubic meters per year; 14 cubic meters are meant for export to European countries. Botas and Tagas will set up a joint venture with European partners for the transporting of gas to Europe.

CPC Starts Laying Pipes

· On Wednesday, Chevron announced that the Caspian Pipeline Consortium has started laying the pipes for the route which will connect western Kazakhstan with the Black Sea port of Novorossiisk. According to a company press release, the pipe will be laid in a new 450 mile section, which will be from Russia's Komsolmoskya to Novorossiisk. It is just one section of the 900-mile Caspian pipeline. The project also involves renovating some existing pipeline assets. Chevron holds a 15 percent stake in the CPC and a 45 percent stake in Tengizchevroil, operating the Tengiz oil field in Kazakhstan. President of Chevron Overseas Petroleum Inc. Dick MATZKE said, "CPC is considered the bellwether project in the former Soviet Union, and Chevron is honored to be a part of it. The CPC shareholders are committed to keeping this project moving forward, and that commitment is evident in reaching yet another milestone today." Earlier this month, the CPC shareholders approved a $1.3 billion budget and work plan for 2000. The pipeline will allow maximum development of the Tengiz field, with potential reserves of 6 to 9 billion barrels of recoverable oil. Peak production of 700,000 barrels per day is expected in 2010. The CPC pipeline will add more than $150 billion to the combined GDP in Russia and Kazakhstan, while adding up to 200,000 jobs.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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When you need to know it as it happens